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24 Responses to “What going over the ‘fiscal cliff’ means . . .”

I could live with that. Yes, ripping off the bandaid would be painful for a few years, but we would recover. And given the gridlock that passes for legislating these days I have serious doubts the DC crowd is going to produce better results than the above, unless death by a thousand cuts is considered “better”.

On a different note, perhaps the Mayan’s were right after all. They just meant the end of world for Right Wing Republicans. November elections, Fiscal Cliff Plan B debacle, NRA press conference disaster.

At this point do we really think a recession would cause the market to go lower? I mean, you look at the extravagant prices investors/central banks are willing to pay for absolute garbage today, and it’s hard to envision a scenario whereby the markets can fall any significant amount.

Even that -3.5 isn’t impressive as it is all “what ifs”. Europe’s problem’s just aren’t “austerity”, but a stupid monetary union the north won’t deal with because it will take down their banking overlords.

America doesn’t have that kind of problem. We can print up what we want. Want to lower inflation? Get rid of the Bush tax cuts and reduce DoD. Want to increase inflation? More spending on the lower classes. This has a effect of boosting nominal profits while reducing inflationary pressures for the Federal Reserve System, further reducing debt.

While the cliff has some bad side increases for the non-wealthy, they are the temporary price to pay to get the system back on track.

Actually there was a drag of 0.8% from government policy changes in 2012 (yet we grew about 3% in the last quarter). The total drag from government in 2013 (with fiscal cliff) is 3.53%. So the additional drag for 2013 would only be 2.73% or less than the expected “natural” growth rate.

I hope the new year will bring a clean slate negotiation process. Back to Clinton tax rates and sequester spending cuts as the base. Then try to find out if there are any stimulative policies that the two parties can agree on, and implement those. Each proposal should be scored for its impact on GDP and a simple GDP impact vs. cost table should be created containing all proposals from democrats and republicans. Kill this stupid idea of a “grand bargain” when the political climate obviously is not going to allow such a thing.

> So -3.5% on an economy that grew about 3% last quarter. Mild recession, which isn’t bad for getting our fiscal house in order

According to the most recent CBO projections – which that chart is based on – unemployment would also move up to 9.1% by the end of 2013 if all the tax and spending policies take effect in January. That is not palatable for economic AND political reasons, and you can be sure we will have a deal of some sort especially regarding taxes. If this drags much into January this issue will be front and center for a lot of people and the markets.

The brilliant thing Obama did when he set this up a year ago, and from a weak negotiation position, was that he ensured that the Bush tax cuts for ALL would expire and that serious cuts to defense would be enacted. He knows that is what needs to happen, but there was no way he could propose it nor any way he could get people to vote for it. Now it will all happen automatically because the tea-baggers are throwing hissy-fits. So he gets the unpopular but necessary cuts and tax-increases enacted without his fingerprints on them. Eventually the GOP will come back begging for a deal, and then he can demand for every dollar increase in defense, two dollar increases in infrastructure spending.

There is absolutely no indication that the economy is growing at 3% in Q4. We will be lucky to get 1/2 that. If we stay over the cliff we will be in a recession.

Watching the smug Dem’s defend the tax cuts is sure entertaining! I just heard Dean Baker say “When you pull money out of the economy it mean less consumption and less demand” and we just can’t support that right now.. :-) Finally something I can agree with.

“Watching the smug Dem’s defend the tax cuts is sure entertaining! I just heard Dean Baker say ‘When you pull money out of the economy it mean less consumption and less demand’ and we just can’t support that right now.. :-) Finally something I can agree with.”

There’s a huge difference between broad tax increases which would have a significant and noticeable impact on the discretionary income of American workers, and increasing taxes on the wealthy, which according to the independent non-partisan CBO, would have an impact on the national economy of less than a rounding error.

DeDude is absolutely right. There is a big problem with both parties wanting deficit reduction and neither party wanting to raise taxes. That leaves only one way – Ryan’s budget that was rejected by the voters but is being resurrected by Obama throwing Social Security and Medicare under the bus along with all present and future civilian and military government retirees.

Was there such a dire consequence when Clinton raised taxes to the very level that the “fiscal cliff” restores? I don’t remember that. Or is someone claiming the dot-com bust was caused by taxes?

Don’t we laugh at Greece for refusing to get their fiscal house in order by refusing to increase taxes on all and also refusing to reduce spending?

One minute after Ohio was called for Obama on Nov-6 Boehner should have called him and say something like: Mr. President I’m ready to sign on your terms of surrender regarding the fiscal cliff, I promise I wont even read them I’ll just sign on the bottom line. In fact he could have done that right after the first debate when the IntraTrade and all UK odd makers didn’t budge, end of story.

And YES, it is entertaining to watch snug Dem’s defending tax cuts which they first opposed.
And even more so to watch in bewilderment some of the Republicans protect George Soros’ low tax rate in fact protect the lower tax rates for the uber rich, the majority of which are Democrats and voted for Obama and when polled state that they WANT higher tax rates for themselves. Go figure.

The fiscal cliff is perfectly reasonable policy. The tax increases will actually stimulate the economy as usual, despite all the squealing and whining. The defense cuts will barely be noticed with their low multiplier. I’m actually expecting economic growth if we go over the cliff. DeDude has it right. Obama set this up. I keep thinking briar patch as in the old Uncle Remus story. Brer Rabbit had a clever strategy. I can only imagine it is that the stories, as told, were as racist as a KKK picnic, that has kept them out of popular discourse. And, just as well.

kaleberg Says:
December 21st, 2012 at 10:58 pm
“….. DeDude has it right. Obama set this up.”

~~~
The Neo-cons did this to themselves with their extreme inability to compromise over the last four years – now they’re painted into a corner….without the “one term president” trophy.

In case no one noticed, after voting down “plan B”, the Republicans went home for the holidays.

Rand Paul called this “strategy” weeks ago.

Knowing the GOP was backed into a corner he said something to the effect of “Let them get their way after we leave for the holidays, then they can take responsibility for the results.” – spoken like a little league coach that knows his teams about to get schooled and wants to give the boys something to feel less demoralized over.

“There’s a huge difference between broad tax increases which would have a significant and noticeable impact on the discretionary income of American workers, and increasing taxes on the wealthy, which according to the independent non-partisan CBO, would have an impact on the national economy of less than a rounding error.”

The reason for that is, if you only raise taxes on the wealthy, your revenue is just a small fraction of the value of the broad tax increases. Something on the order of $85 billion a year in the face of Trillion $ plus deficits. So it also has a “rounding error” effect on addressing the Federal debt bomb.

The company I work for sent an e-mail around that said that the FICA tax is going back up the 2% that was temporarily reduced starting the first paycheck in January but the income tax withholding schedules have not been modified by the IRS, so the paycheck withholding will stay the same as this year until the IRS provides other instructions.

“As Democrats on Capitol Hill described the possible fallback plan, it would be similar to legislation already passed by the Senate to extend the Bush-era tax rates for income below $250,000, increase to 20 percent from 15 percent the tax rate for capital gains and dividend income, and extend some other tax breaks. . . . But the new bill, they said, would also delay the so-called sequester in January — across-the-board spending cuts in military and domestic programs that Mr. Obama and Congress scheduled in mid-2011 as an incentive for the two sides to approve an alternative, more deliberate deficit-reduction compromise.

“A spokesman for Mr. Reid said in a statement: ‘As a fallback plan to protect the middle class, Republicans should support passing a bill that extends tax cuts for families up to $250,000, extends unemployment insurance, and delays the so-called sequester while we negotiate additional policies next year.’”

I think defense/non-defense cuts would be very unpopular, certainly with Republicans but also with many Democrats. Any deal on taxes would certainly involve the cuts stipulated in the budget control act.

Yes the house passed this bill after they had negotiated it with Obama. You know this there “legislative/executive division of duties and power” stuff. So what exactly was your point?
You read the first two sentences of a Wiki entry and not anything about how this whole “budget control act” was developed?
You think this site is full of right wing morons who will take it all hook,line and sinker as long as it says something negatively about Obama?
You want to show us that you are stupid enough to try and defend the idea that this deal was not between Obama and Boehner?

@DeDude: Relax dude, it’s Christmas time and your man won anyway. Time for him to show some leadership now. Your rude, insulting, know it all tone automatically disqualifies you as a serious blogger here. Now you even pretend to know what I think based on a quote from Wiki ? At least it got you to give Boehner some credit.

To put your mind at ease, here’s what I think and most likely erroneously so: perhaps taking the medication NOW the jump may turn out OK beyond a couple of quarters. Don’t we go around the world and prescribe it as the road to Nirvana? But our politicians (all, right, center and left) wont have any of it for fear of losing their jobs. No wonder even the likes of Vladimir Putin and the Iranian Mullahs are taking cheap shots at our financial mess.

Boehner is the only Republican that counts, less popular than Pelosi now=98.81%. Norquist is the hated one, he wants balanced budgets just like the dumb Germans and the crazy Swiss=98.81%, recent surrender. Obama is the only Democrat that counts: our tax slayer and oil/gas industry patron/purveyor man of the year=98%.

Thus Obama≈Norquist, Delta=0.81%, a couple of $ hundred B’s over 10 years, if that, rounding off error to the $1 T plus YERALY deficit, political trophy? what fiscal cliff?

Happy Spending America, long live Paul Krugman though he hates tax cuts, but then again, he’s an economist.

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Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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